DWDP - The 'Earnings Recovery' Remains An Accounting Mirage
On January 11, 2018, we showed that the "earnings recovery" is an illusion. U.S. equities[1] may have rebounded from 2015 lows, but economic earnings - which reverse accounting distortions and account for the weighted average cost of capital (WACC) - remain in a persistent downturn. Figure 1 shows this trend.
Figure 1: Economic vs. GAAP Earnings
Sources: New Constructs, LLC and company filings.
This disconnect between accounting earnings and economic earnings is not just due to a handful of companies. 6 out of 11 sectors have misleading earnings (GAAP rising and